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Consumer Discrimination and Self-Employment

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Author Info
George J. Borjas
Stephen G. Bronars

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Abstract

Self-employment rates and incomes differ significantly by race. We show that these differentials arise in markets with consumer discrimination and incomplete information about the price of the good and the race of the seller. Equilibrium income distributions have two properties: mean black incomes are lower than mean white incomes, and the returns to ability are lower for black than for white sellers. Able blacks, therefore, are less likely to self-select into the self-employment sector than able whites. Using the 1980 Census data, we find that observed differences in the self-employment income distributions are consistent with the theoretical predictions.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2627.

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Date of creation: Sep 1989
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Publication status: published as Journal of Political Economy, Vol. 97, No. 3, pp. 581-605, (June 1989).
Handle: RePEc:nbr:nberwo:2627

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Leonard, Jonathan S, 1984. "Employment and Occupational Advance under Affirmative Action," The Review of Economics and Statistics, MIT Press, vol. 66(3), pages 377-85, August. [Downloadable!] (restricted)
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  2. George J. Borjas, 1986. "The Self-Employment Experience of Immigrants," NBER Working Papers 1942, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January. [Downloadable!] (restricted)
  4. Moore, Robert L, 1983. "Employer Discrimination: Evidence from Self-Employed Workers," The Review of Economics and Statistics, MIT Press, vol. 65(3), pages 496-501, August. [Downloadable!] (restricted)
  5. Goldberg, Matthew S, 1982. "Discrimination, Nepotism, and Long-Run Wage Differentials," The Quarterly Journal of Economics, MIT Press, vol. 97(2), pages 307-19, May. [Downloadable!] (restricted)
  6. Carlson, John A & McAfee, R Preston, 1983. "Discrete Equilibrium Price Dispersion," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 480-93, June. [Downloadable!] (restricted)
  7. Blau, David M, 1987. "A Time-Series Analysis of Self-employment in the United State," Journal of Political Economy, University of Chicago Press, vol. 95(3), pages 445-67, June. [Downloadable!] (restricted)
  8. Lazear, Edward P & Moore, Robert L, 1984. "Incentives, Productivity, and Labor Contracts," The Quarterly Journal of Economics, MIT Press, vol. 99(2), pages 275-96, May. [Downloadable!] (restricted)
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